U.S. Small Business Administration Office of Government Contracting A Handbook for Small Business Liaison Officers June 2010
TABLE OF CONTENTS CHAPTER 1 PAGES SBA S ROLE IN PRE-AWARD SUBCONTRACTING PLAN REVIEWS 4 5 The Laws, The Rules, and The Regulations Why Does The Government Require Subcontracting Plans? Federal Acquisition Regulation (FAR ) Part 19 Assistance Available from SBA CHAPTER 2 THE SUBCONTRACTING PLAN 6 10 What Are The Required Elements of a Plan? What Are The Types Of Subcontracting Plans? What is Maximum Practicable Opportunity (MPO)? What Actions Should Other-Than-Small Business Contractors Take to Enhance MPO? CHAPTER 3 SUBCONTRACTING FLOW-DOWN REQUIREMENTS 11-12 What is a First Tier Subcontractor? What are Second-Tier, Third Tier, Fourth-Tier Subcontractors, etc.? How Far Does the Flow-Down Go? CHAPTER 4 HOW TO REVIEW A SUBCONTRACTING PLAN 13-14 What are the Pre-award Responsibilities of an Otherthan-Small Business Prime Contractor or Subcontractor? Who Reviews the Subcontracting Plan? How Should the Prime Contractor Review the Subcontracting Plan? What is an Acceptable Subcontracting Plan? What Should the Prime Contractor Do with an Unacceptable Plan? CHAPTER 5 NAICS CODES, SIZE STANDARDS, AND CERTIFICATIONS 15-18 What Is A NAICS Code? What Are Size Standards? What Is A Small Business? What Is Affiliation? How Do NAICS Codes Affect Size Status Self Certifications? What Certifications Apply to Subcontractors? What Is Self-Certification? What Are Federal Certifications? Who Can Challenge/Protest the Size Status of A Subcontractor? Who Can Challenge/Protest The Disadvantaged Status Of A Subcontractor? 2
PAGES CHAPTER 6 POST-AWARD SUBCONTRACTING RESPONSIBILITIES 19-23 Who is Responsible for Enforcing the Subcontracting Rules? Individual Subcontract Report (ISR) Subcontracting Report for Individual Contracts Who Submits Reports? (Reporting Requirements for 1 st Tier Goals) How Often is The ISR Submitted? What Is Reported On The ISR? Summary Subcontract Report (SSR) Who Submits the SSR? To Whom Is The SSR Submitted? How Often Is The SSR Submitted? What Is Reported On The SSR? CHAPTER 7 HOW SBA MONITORS OTSB CONTRACTORS 24 25 Subcontracting Program Compliance Reviews Performance Reviews Subcontracting Orientation and Assistance Reviews (SOAR) Follow-Up Reviews CHAPTER 8 SUBCONTRACTING PROGRAM AWARDS 26 Award Of Distinction Dwight D. Eisenhower Award For Excellence Francis Perkins Vanguard Award Small Business Subcontractor of the Year APPENDICES A Legislation Affecting Federal Prime and Subcontracts B Subcontracting Assistance Program Fact Sheet C Subcontracting Plan Format D Sample Documentation of Purchases over $100,000 Form E Sample Flow-Down Letters F Subcontracting Plan Review Sheets G Small Business Federal Definitions H Sample Size Self-Certification Form I MOU with DCMA/SBA J SBA Small Business Program Compliance Review Checklist K Websites L Frequently Asked Questions SBLO Handbook: 06//15/2010 3
Chapter 1 Small Business Administration s (SBA) Role in Pre-Award Subcontracting Plan Reviews The Law, the Rules and the Regulations Passed in 1978, Public Law 95-507 amended 8(d) of the Small Business Act of 1953 (15 U.S.C. 637(d)) and created the foundation for the Subcontracting Assistance Program as it is known today. It changed the participation of large contractors in the program from voluntary to mandatory, and it changed the language of the law from best efforts to maximum practicable opportunities. Other key features of 8(d) of the Small Business Act, as amended, include requirements that all federal contracts in excess of $150,000 provide maximum practicable opportunity for small and small disadvantaged business to participate and that all those in excess of $650,000 ($1,500,000 in the case of construction contracts for public facilities) be accompanied by a formal subcontracting plan containing separate goals for small business and small disadvantaged business. (See Appendix A, Legislation Affecting Federal Prime and Subcontracts.) Why Does the Government Require Subcontracting Plans? It is the policy of the United States that small business (SB), small disadvantaged business (SDB), women owned small business (WOSB), veteran-owned small business (VOSB), servicedisabled veteran-owned small business (SD/VOSB), and Historically Underutilized Business Zone small business concerns (HUBZone SB) shall have the maximum practicable opportunity to participate in the performance of contracts awarded by any federal agency. Other-than-small business (OTSB) contractors are legally obligated to carry out this policy when awarding subcontracts to the fullest extent consistent with the efficient performance of their contracts. The term "other-than-small" business refers to any entity that is not classified as a small business. 1 This includes: large businesses, state and local governments, and non-profit organizations including all Ability One (formerly Javits-Wagner-O Day or JWOD) entities as well as Federal Prison Industries, Inc. (also known as UNICOR) as these entities are not on the exceptions listed in Federal Acquisition Regulations (FAR) 19.702(b) (48 Code of Federal Regulations (CFR) 19.702(b)). In most cases, it also includes public utilities, educational institutions, and foreignowned firms. However, there may be certain instances where a public utility, educational institution, or foreign-owned firm could be considered a small business. When in doubt, you should contact your local SBA Area office. Note: foreign-owned firms that receive Federal contracts over the applicable dollar threshold are normally required to have subcontracting plans if any portion of their contract is to be performed in the United States. However, a foreignowned firm can sometimes meet SBA s criteria for small business status, in which they would be 1 The terms other-than-small business or OTSB and large business tend to be used interchangeably. In most cases, other-than-small business or OTSB is considered preferable; however, for the sake of simplicity, we have used large business in some of the chapters and appendixes in this Handbook. 4
exempt from the requirement to submit a subcontracting plan. See Title 13 CFR Part 121, especially 121.105(a) for additional information. OTSB contractors must further agree to cooperate in any studies or surveys that may be conducted by the SBA or the awarding agency of the United States that may be necessary to determine the extent of the contractor s compliance with this legal requirement. When public monies are involved, the federal government has an obligation to promote socioeconomic policies and objectives. Federal Acquisition Regulations (FAR) Part 19 (48 CFR) FAR Part 19 implements the procurement sections of the Small Business Act. Federal contracting agencies must conduct their acquisitions in compliance with these regulations. OTSB contractors are required to comply with certain clauses and provisions referenced in the FAR. Subpart 19.1 prescribes policies and procedures for Size Standards. (Also in Title 13 of the U.S. Code of Federal Regulations. See Chapter 5 for more detailed information.) Subpart 19.7 prescribes policies and procedures for subcontracting with SB, SDB, WOSB, VOSB, SD/VOSB, and HUBZone SB concerns. Subpart 19.12 prescribes policies and procedures for the SDB Participation Program, including incentive subcontracting with SDB concerns. Subpart 19.13 prescribes policies and procedures for the HUBZone SB Program. Assistance Available from SBA Through its network of Procurement Center Representatives (PCRs) and Commercial Market Representatives (CMRs), SBA can provide assistance to SBs as well as to federal agencies and OTSBs. PCRs help federal agencies with solicitations and subcontracting requirements, and evaluate proposed Subcontracting Plans submitted by OTSBs. CMRs can counsel OTSBs on how to prepare Subcontracting Plans and meet the other requirements of the law, and they can counsel SBs on how to market their products and services to prime contractors. (See Appendix B, Subcontracting Assistance Program Fact Sheet.) Complete lists of both PCRs and CMRs are available at http://www.sba.gov/gc/contacts.html. SBLO Handbook: 06//15/2010 5
Chapter 2 The Subcontracting Plan A Subcontracting Plan is a document setting forth how a contractor will provide SB, SDB, WOSB, VOSB, SD/VOSB, and HUBZone SB concerns with the maximum practicable opportunity to participate in the performance of a contract or subcontract. Subcontracting Plans are required from all OTSB contractors that are awarded Federal contracts or subcontracts for goods and services exceeding $650,000 or $1,500,000 for construction of a public facility. The Subcontracting Plan, which is a material part of the contract, should be given serious consideration prior to proposal submission in order to provide such maximum practicable opportunity. A Subcontracting Plan should not be an afterthought. SBA PCRs review Subcontracting Plans prior to contract award and issue advisory comments to the Contracting Officer. The PCR review encompasses all the required elements of the Subcontracting Plan. (See Appendix C, Subcontracting Plan Format.) What are the Required Elements of a Subcontracting Plan? There are eleven elements of a subcontracting plan identified in FAR 19.704 and in FAR Clause 52.219-9. The subcontracting plan must include: 1. Separate percentage goals for using SB (including Alaska Native Corporations (ANCs) and Indian tribes), SDB, WOSB, HUBZone small businesses certified by SBA, VOSB, and SD/VOSB concerns. The percentages must be expressed as percentages of the total subcontract dollars. Goals for option years must be broken out separately*; (Some solicitations will require that goals be expressed as a percentage of the total contract value rather than as a percentage of total subcontracting. In this instance, SBA prefers that the plan express goals both as a percentage of contract value and as a percentage of total subcontracting.) 2. A statement of the total dollars planned to be subcontracted and a statement of the total dollars planned to be subcontracted to SB (including ANCs and Indian tribes), SDB (including ANCs and Indian tribes), WOSB, HUBZone small business, VOSB, and SD/VOSB concerns; 3. A list of the principal types of supplies and services to be subcontracted and an identification of types planned for subcontracting to each group, including OTSB subcontractors. 6
Illustrative example: COMMODITY LB SB SDB VOSB SD/VOSB WOSB HUBZone Misc. Tooling X X X X Computer Hardware/Software X X X Construction Services X X X X X X Metal Parts X X X 4. A description of the method used to develop each of the goals; 5. A description of the method used to identify potential sources; 6. A statement as to whether or not indirect costs were included in the subcontracting goals, and if so, a description of the method used to determine the proportionate share of indirect costs to be incurred with each group; 7. The name of the Administrator of the Subcontracting Plan and a description of his/her duties; 8. A description of the efforts the offeror will make to ensure that SB (including ANCs and Indian tribes), SDB (including ANCs and Indian tribes), WOSB, VOSB, SD/VOSB, and HUBZone SB concerns will have an equitable opportunity to compete for subcontracts; 9. Assurances that the offeror will include the clause at FAR 52.219-8, Utilization of Small Business Concerns, in all subcontracts that offer further subcontracting opportunities, and that the offeror will flow-down the subcontracting requirements to its subcontractors unless the plan is a Commercial Subcontracting Plan (see pages 11 12); 10. Assurances that the offeror will cooperate in any studies or surveys as may be required and will submit periodic reports in order to allow the government to determine the extent of compliance by the company with the Subcontracting Plan, and that its subcontractors agree to submit required reports; and 11. A description of the types of records the offeror will maintain to demonstrate its compliance with the Subcontracting Plan. (See Appendix D, Sample Documentation Form for Purchases/Subcontracts Over $150,000.) What are the Types of Subcontracting Plans? An OTSB prime contractor has several options in developing a Small Business Subcontracting Plan. These options are: Individual Subcontracting Plan is a plan that covers the entire contract period (including options) applicable to a specific contract and includes goals that are based on the offeror s planned subcontracting in support of the contract. 7
Master Subcontracting Plan contains all the required elements of an individual plan, except goals. As the company receives government contracts requiring subcontracting plans, it develops goals specific for each plan. A Master Plan is in effect for three years; however, when incorporated into an individual plan, it applies to that contract throughout the life of the contract. Commercial Subcontracting Plan is a plan, including goals that covers the contractor s fiscal year and relates to the company s production in general, for commercial and noncommercial products or services, rather than solely to the government contract. It applies to either the entire company or a portion of the company (such as a division or product line). This type of plan may be used by an OTSB that is selling a commercial item to the government (see definition at FAR 52.202-1). The contractor is not required to submit an Individual Subcontract Report (ISR) via the electronic subcontracting reporting system (replaces the Standard Form 294). Department of Defense (DOD) Test Program for Comprehensive Small Business Subcontracting Plan for selected contractors. Active participants can be found at http://www.acq.osd.mil/osbp/programs/csp/participants.html. This program, limited to a few DOD OTSB contractors, authorizes the negotiation, administration, and reporting of Subcontracting Plans on a plant, division, or company-wide basis for all defense contracts, rather than individual Subcontracting Plans for every contract over $650,000. Additionally, it waives the requirement for the semi-annual Individual Subcontract Report at www.esrs.gov (replaces Standard Form 294). The purpose of the test is to determine whether Comprehensive Subcontracting Plans will result in increased subcontracting opportunities for SB and SDB while reducing the administrative burdens on contractors. What is Maximum Practicable Opportunity (MPO)? MPO means that an OTSB contractor or subcontractor must offer real opportunities, to the maximum extent possible, to SB, SDB, WOSB, VOSB, SD/VOSB, and HUBZone SB concerns to participate as subcontractors. If maximum opportunities are extended, then subcontracts to these concerns usually result. MPO does not mean that an OTSB contractor or subcontractor should give away subcontracts to SB, SDB, WOSB, VOSB, SD/VOSB, and HUBZone SB concerns. MPO does mean that an OTSB contractor or subcontractor should extend maximum opportunities to SB, SDB, WOSB, VOSB, SD/VOSB, and HUBZone SB concerns to bid on subcontracts, and, if appropriate, to award subcontracts to them. Meeting a numerical goal does not, by itself, mean that an OTSB contractor or subcontractor has provided MPO. Likewise, not meeting a goal does not necessarily mean that an OTSB contractor or subcontractor has not provided MPO. What Actions Should Other-Than-Small Business Contractors Take to Enhance MPO? 8
Efforts to provide the maximum practicable subcontracting opportunities for small business concerns may include, as appropriate for the procurement, one or more of the following actions: Breaking out contract work requirements into economically feasible units, as appropriate, to facilitate small business participation; Conducting market research to identify small business subcontractors and suppliers through all reasonable means, such as performing on-line searches on the Central Contractor Registration, posting Notices of Sources Sought and/or Requests for Proposal on SBA s SUB-Net, participating in business Matchmaking events, and attending pre-bid conferences; Soliciting small business concerns as early in the acquisition process as practicable to allow them sufficient time to submit a timely offer for the subcontract; Providing interested small businesses with adequate and timely information about the plans, specifications, and requirements for performance of the prime contract to assist them in submitting a timely offer for the subcontract; Negotiating in good faith with interested small businesses; Directing small businesses that need additional assistance to SBA; Assisting interested small businesses in obtaining bonding, lines of credit, required insurance, necessary equipment, supplies, materials, or services; Utilizing the available services of small business associations; local, state, and Federal small business assistance offices; and other organizations; and Participating in the formal mentor-protégé program with one or more small business protégés that results in developmental assistance to the protégé(s). Additional actions may include: Advertising subcontracting opportunities in FedBizOpps; Encouraging joint ventures; Providing technical, management and financial training and counseling; Keeping the playing field level, allowing all bidders equal time to respond; providing the same information to all prospective subcontractors at the same time; 9
Notifying SB, SDB, WOSB, VOSB, SD/VOSB, and HUBZone SB firms that trade union membership is not a FAR (contract) requirement but that payment of the Davis-Bacon prevailing wage rates is a FAR (contract) requirement; and Providing debriefings to unsuccessful small business offerors. All contractors with subcontracting plans should review SBA s regulation at 13 CFR 125.3, Subcontracting Assistance, which is available at http://www.sba.gov/tools/resourcelibrary/index.html. This regulation provides specific examples of actions a contractor can take, including many of those listed above, to demonstrate a goodfaith effort to meet the goals in its subcontracting plan. * Effective September 17, 2007, per FAR 19.703(c)(1)(i): Subcontracts awarded to an ANC or Indian tribe shall be counted towards the subcontracting goals for small business and small disadvantaged business (SDB) concerns, regardless of the size of SBA certification status of the ANC or Indian tribe. (ii) Where one or more subcontractors are in the subcontract tier between the prime contractor and the ANC or Indian tribe, the ANC or Indian tribe shall designate the appropriate contractor(s) to count the subcontract towards its small business and small disadvantage business subcontracting goals. (A) In most cases, the appropriate contractor is the contractor that awarded the subcontract to the ANC or Indian tribe. (B) If the ANC or Indian tribe designates more than one contractor to count the subcontract towards its goals, the ANC or Indian tribe shall designate only a portion of the total subcontract award to each contractor. The sum of the amounts designated to various contractors cannot exceed the total value of the subcontract. (C) The ANC or Indian tribe shall give a copy of the written designation to the contracting officer, the prime contractor, and the subcontractors in between the prime contractor and the ANC or Indian tribe within 30 days of the date of the subcontract award. (D) If the contracting officer does not receive a copy of the ANC s or the Indian tribe s written designation within 30 days of the subcontract award, the contractor that awarded the subcontract to the ANC or Indian tribe will be considered the designated contractor. (2) A contractor acting in good faith may rely on the written representation of an ANC or an Indian tribe as to the status of the ANC or Indian tribe unless an interested party challenges its status or the contracting officer has an independent reason to question its status. In the event of a challenge of a representation of an ANC or Indian tribe, the interested parties shall follow the procedures at FAR 26.103(b) through (e). SBLO Handbook: 06//15/2010 10
Chapter 3 Subcontracting Plan Flow-Down Requirements: Who Flows Down Plans and To Whom? What is a First-Tier Subcontractor? A prime contractor s subcontractor is referred to as the first-tier subcontractor. The OTSB prime contractor must flow-down the Subcontracting Plan requirements to all subcontractors (except small businesses) who receive a single order or subcontract in excess of $650,000 for goods and services, or $1.5 million for construction of a public facility. An OTSB prime contractor with a subcontracting plan must require all OTSB subcontractors to implement a plan that complies with the requirements of FAR 52.219-9. The OTSB prime contractor is responsible for obtaining, approving, and monitoring the Subcontracting Plans of its OTSB subcontractors. There is an exemption when the subcontract is for a commercial item or a commercial component, per FAR 52.212-5(e) and 52.244-6(c). (See Appendix L, Frequently Asked Question 20.) What are Second-Tier, Third-Tier, Fourth-Tier Subcontractors, etc.? If the first-tier subcontractor is an OTSB and it subcontracts to another OTSB over the dollar threshold, it must require that firm (the second-tier subcontractor) to adopt a Subcontracting Plan similar to its own. If the second-tier OTSB subcontractor then subcontracts to another OTSB (the third-tier subcontractor) over the threshold, the third-tier subcontractor must adopt a Subcontracting Plan as well. How Far Does the Flow-down Go? As long as an OTSB subcontractor is awarded a subcontract in excess of $650,000, ($1.5 million for construction of a public facility), the requirement to submit a Subcontracting Plan is flowed-down. Once a subcontract is awarded to a SB, SDB, WOSB, VOSB, SD/VOSB or HUBZone SB concern, the flow-down ends. However, FAR Clause 52.219-8, Utilization of Small Business Concerns, is always flowed-down to OTSB, SB, SDB, WOSB, VOSB, SD/VOSB, and HUBZone SB concerns for all subcontracts over $150,000 that offer further subcontracting opportunities. It also requires that contractors and subcontractors provide maximum practicable opportunities for small business concerns to participate in federal contracts, establish procedures to ensure timely payments to small business subcontractors, and cooperate in any studies or surveys by the SBA or the awarding agency. Under the flow-down provision, OTSB subcontractors with Subcontracting Plans must submit their subcontracting achievements via the electronic subcontracting reporting system (esrs), which replaced the Standard Forms 294 and 295 reports, as applicable (explained on pages 19-24), just as the prime contractors do. The prime contractor will review the Individual 11
Subcontract Report (ISR) of its first-tier subcontractors and the first-tier subcontractors will likewise review the reports of the second-tier subcontractors, and so forth. This is done for monitoring purposes, and continues in this manner for all tiers. The OTSB subcontractor must also complete a Summary Subcontract Report (SSR) that will be reviewed by the government. This enables the government to collect subcontracting statistics from all of the subcontracting tiers. The flow-down process is intended to ensure that all small businesses receive maximum practicable opportunities to perform on government contracts and subcontracts, regardless of the subcontracting tier. (See Appendix E, Sample Flow-Down Letters.) SBLO Handbook: 06//15/2010 12
Chapter 4 How to Review a Subcontracting Plan What are the Pre-award Responsibilities of an Other-than-Small Business Prime Contractor or Subcontractor? During the solicitation process, OTSB prime contractors should discuss the Subcontracting Plan requirements with all potential OTSB subcontractors bidding on subcontracts over $650,000, or $1.5 million for construction of a public facility, at individual meetings and pre-bid conferences in order to: Ensure that they understand that the Subcontracting Plan is a contractual requirement; Encourage the use of the Central Contractor Registration (CCR) at www.ccr.gov and the Dynamic Small Business Search button on the CCR home page to locate potential small business subcontractors; Provide sample Subcontracting Plan formats (see Appendix C) to all potential OTSB subcontractors; Require potential OTSB subcontractors to submit Subcontracting Plans with their bids/proposals; Advise potential OTSB subcontractors up front if Subcontracting Plans are a part of the evaluation process; and Reinforce the mind-set that efforts should be taken by all potential OTSB subcontractors to enhance MPO to SB, SDB, WOSB, VOSB, SD/VOSB, and HUBZone SB concerns. Subcontracting Plans must be reviewed prior to award of the subcontract. All procedures required by the higher tier subcontractors should be followed by the lower tier subcontractors. Who Reviews the Subcontracting Plan? As stated above, the Contracting Officer reviews Subcontracting Plans submitted to the government by prime contractors and the SBA PCR provides advisory comments to the Contracting Officer. Under the flow-down provision, the prime contractor s Small Business Liaison Officer (SBLO) reviews Subcontracting Plans submitted by first-tier OTSB subcontractors. The first-tier subcontractors SBLOs review Subcontracting Plans submitted by second-tier OTSB subcontractors; the second-tier subcontractors SBLOs review Subcontracting Plans submitted by third-tier OTSB subcontractors; and so on. 13
How Should the Prime Contractor Review the Subcontracting Plan? The Subcontracting Plan submitted by the potential subcontractor should be compared to the sample Subcontracting Plan Review Sheet to assure that all elements are properly addressed. (See Appendix F, Subcontracting Plan Review Sheets (regular and quick versions).) The prime contractor should ask the questions, Does the Subcontracting Plan comport with the technical and price proposal? Is it compatible? Are maximum practicable opportunities really being provided to the small business community? Are there any supplies or services proposed to be subcontracted to OTSB firms that can be subcontracted to SB, SDB, WOSB, VOSB, SD/VOSB, HUBZone SB firms? What is an Acceptable Subcontracting Plan? The Subcontracting Plan must include all of the required elements per FAR 52.219-9. It must provide maximum practicable opportunities. It must contain realistic and challenging goals that reflect the contractor s best efforts for each specific industry. The goals must not be inflated in order to create a favorable but false impression. The goals must not be understated in order to easily accomplish goal achievement without providing maximum practicable opportunities. The achievement of numerical goals does not necessarily mean compliance with the public law. Likewise, not meeting numerical goals does not necessarily mean non-compliance with the public law. In general, the Subcontracting Plan should include specific, concrete actions that the OTSB subcontractors will take to create opportunities and to enhance maximum practicable opportunities. The Subcontracting Plan should not consist of non-specific promises and platitudes, e.g., We re going to do everything possible to do as much as we can to achieve everything in the Plan, to the best of our ability. What Should the Prime Contractor Do with an Unacceptable Plan? If a Subcontracting Plan is unacceptable, the contractor should not award the subcontract, should provide training and guidance, and should require that an acceptable plan be submitted prior to award. SBLO Handbook: 06//15/2010 14
Chapter 5 What are NAICS Codes, Size Standards and Certifications? The following discussion provides the background information necessary for the development and implementation of a prime contractor s Small Business Program. It also corresponds to some of the data that is analyzed by the CMR when conducting various Subcontracting Reviews. What is a NAICS Code? The North American Industry Classification System (NAICS) manual classifies establishments based on the type of business activity in which they are engaged. Each solicitation for a federal procurement, i.e. prime contract or subcontract, is assigned a NAICS code which best describes the goods or services being acquired and the principal purpose of the procurement. Generally, a requirement is classified according to the component that represents the greatest dollar value. For example, when considering a furnish and install procurement, the NAICS code is determined by the dollar value of the material to be supplied versus the cost of the service that is required to install the material; the NAICS code is determined by whichever cost is greater. Also, procurements for supplies must be classified under the appropriate manufacturing NAICS code, not under the wholesale or retail trade NAICS codes. What are Size Standards? Each NAICS code has a corresponding size standard. See http://www.sba.gov/size/. The SBA establishes small business size standards on an industry-by-industry basis. They correlate to the NAICS codes published in the NAICS manual and apply to all federal prime contracts and subcontracts. The size standards are set forth in 13 CFR Part 121 and the FAR 19.102 (48 CFR 19.102). Size standards that are preceded by a dollar sign ($) are expressed in millions of dollars and represent average gross annual receipts over the firm s last three (3) completed fiscal years. Generally, size standards not expressed in dollars represent the average number of full-time employees. Employee-based standards are used for manufacturing/wholesaling industries. Also, the size standard includes the concern s affiliates employees/revenue. What is a Small Business? In order to qualify for benefits as a small business, a concern must first meet the definition of business concern under 13 CFR 121.105. In essence, it must be a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U. S. economy through payment of taxes or use of American products, materials, or labor. The business concern qualifies as a small business if its receipts or employees (whichever standard is applicable) are 15
under the applicable size standard (see 13 CFR 121) (FAR 19.1). In determining a business size, the receipts or revenues of all affiliates are counted (see 13 CFR 121.103). What is Affiliation? Business concerns are affiliates of each other if, directly or indirectly, either one controls or has the power to control the other, or another concern controls or has the power to control both. In determining whether affiliation exists, consideration is given to all appropriate factors, including common management, common ownership, and contractual relationships. Any business entity may be found to be an affiliate, whether or not it is organized for profit or located inside the United States. (See 13 CFR 121.103). How Do NAICS Codes Affect Size Status Self Certifications? In conjunction with the Small Business size representation, the NAICS code and corresponding size standard must be designated in the solicitation. In this manner, offerors are properly notified of the applicable qualifying criteria. When determining the NAICS code/size standard of a subcontractor, find the NAICS code which best describes the product or service being purchased. Do not use the same NAICS code as the one in your prime contract with the government, unless the subcontract is for the same item/service. Some companies may qualify as small under one NAICS code but exceed the size standard for another. What Certifications Apply to Subcontractors? What is Self-Certification? A small business must qualify and self-certify as a small business at the time it submits its offer as a Section 8(d) subcontractor (see13 C.F.R. 121.411). An OTSB contractor acting in good faith may rely on the written representation of its subcontractor regarding its status as a SB (including ANCs and Indian tribes), SDB, WOSB, VOSB or SD/VOSB firm. Acting in good faith could be considered the reasonable judgment of a prudent business person. OTSB contractors must verify HUBZone SB status in the Central Contractor Registration (CCR) at www.ccr.gov. (See Appendix G, Small Business Federal Definitions.) A typical self-certification that must be maintained by the OTSB contractor includes the following information: The full-text definitions (or FAR reference thereto) of a SB, ANC, Indian tribe, SDB, HUBZone SB, WOSB, VOSB and SD/VOSB. The NAICS code and corresponding size criteria applicable to the effort being solicited. Space for indicating whether or not the firm represents and certifies itself to be a SB, ANC, Indian tribe, WOSB, SDB, VOSB, SD/VOSB and/or HUBZone SB concern. Notification concerning penalties and remedies for misrepresentation of business status as an SB, ANC, Indian tribe, SDB, HUBZone SB, WOSB, VOSB, or SD/VOSB concern for the purpose of obtaining a subcontract. 16
Appropriate space for the typed name and signature of the corporate official and the date. The prime contractor is required to have a size self-certification for every subcontractor it is counting as small on its subcontracting reports. If there is no size self-certification, then the award to the subcontractor must be counted as an other than small business award. The prime contractor obtains a size certification in connection with each subcontract. No third party certifications are accepted unless written self-certifications are obtained and can be produced for reviews or obtained any time by the contractor. For example, the Central Contractor Registration (CCR) or the Online Representations and Certifications Application (ORCA) cannot be used in place of obtaining a written size self-certification from subcontractors. (FAR 4.1201(a)) For purposes of maintaining a small business source list, prime contractors may rely on the information contained in the CCR or equivalent database maintained or sanctioned by SBA, as an accurate representation of a concern s size and ownership characteristics. (See Appendix H, Sample Size Self-Certification Form.) What are Federal Certifications? In order to be considered a HUBZone SB, the firm must be certified by SBA and listed in the CCR at www.ccr.gov. Statements regarding the size status of a firm from state, county or local governments, or from purchasing councils or any other party are unacceptable for either federal or self-certification purposes. OTSB contractors are required to provide notice to subcontractors concerning penalties and remedies for the misrepresentation of business status. Per 15 U.S.C. 645(d), punishment includes imposition of a fine, imprisonment, or both, and possible administrative remedies include suspension and debarment. Who Can Challenge/Protest the Size Status of a Subcontractor? The prime contractor, the Contracting Officer, other potential subcontractors, the SBA, or other interested parties, may challenge a subcontractor s size status representation by initiating a protest to the Contracting Officer. Size protests are handled in accordance with sections 13 CFR 121.1001 to 121.1103. Who Can Challenge/Protest the Disadvantaged Status of a Subcontractor? Only the procuring agency Contracting Officer or the SBA may protest the disadvantaged status of a proposed subcontractor. Other small business subcontractors and the prime contractor may submit information to the Contracting Officer in an effort to persuade the Contracting Officer to initiate a protest. Such protests, in order to be considered timely, must be received by the Contracting Officer prior to the completion of performance by the intended subcontractor. Protests challenging a subcontractor s disadvantaged status representation shall be filed in accordance with Subpart B of 13 CFR 124. 17
Chapter 6 Post-Award Subcontracting Responsibilities Who is Responsible for Enforcing the Subcontracting Rules? The SBA, through the Small Business Act as amended, is designated as the principal government agency responsible for enforcing the provisions of the law pertaining to subcontracting. The authority to carry out these responsibilities is incorporated into government contracts by clauses required by the FAR. (Section 8(d) 15 USC 637(d)) Oversight of the Subcontracting Plan by the contracting agency is administered by the Administrative Contracting Officer (ACO), who is responsible for assisting in the evaluation of Subcontracting Plans, and for monitoring, evaluating and documenting contractor performance on behalf of the awarding agency. The ACO s responsibility is separate and distinct from SBA s responsibility. (FAR 19.705-4) The SBA CMR monitors goal achievement after contract award and conducts various types of reviews, including Subcontracting Program Compliance Reviews and Subcontracting Orientation and Assistance Reviews. These reviews will be discussed later in greater detail. The following information and instruction discuss the reporting requirements for OTSB contractors and subcontractors. (13 CFR 125.3(e)) WHAT IS THE ELECTRONIC SUBCONTRACTING REPORTING SYSTEM (esrs)? This is the OFFICIAL site for post-award reporting requirements. This Internet-based tool will streamline the process of reporting on subcontracting plans and subcontracting plan performance. The esrs eliminates the need for paper submissions of the Standard Forms 294 and 295 and replaces these with an easy-to-use password protected electronic process to collect the data. OTSB contractors and subcontractors must access www.esrs.gov to register their business and to review the contractor training manual, power point presentations, and FAQs. The system will guide you through the reporting process. The esrs is part of the Integrated Acquisition Environment with critical system linkages to the CCR, Federal Procurement Data System Next Generation, and the DUNS number for prime contractors and subcontractors. The system will provide an application interface so that contractors with electronic systems of their own can upload their data into the esrs. The following sections address the post-award reporting requirements via the online system. Who Submits Reports? (Reporting Requirements for 1 st Tier Goals) All OTSBs that have one or more prime contract(s) and/or subcontract(s) in excess of $650,000 ($1.5 million for construction of a public facility) with the federal government, and have 18
Subcontracting Plans must submit an online Individual Subcontract Report (ISR) (formerly the SF 294 report) unless the contractor is operating under an approved Commercial Subcontracting Plan or is currently in the DOD Test Program for Negotiation of Comprehensive Subcontracting Plans. A separate ISR is required for each federal contract and/or subcontract. (13 CFR 125.3(c)(1)(iii); FAR 19.704) Contracting Officers and the Offices of Small and Disadvantaged Business Utilization (OSDBUs) will no longer receive paper SF-294s and SF-295s. Instead, they will log on to the esrs to view their contractors' achievements. The system will provide a variety of standard reports, including Analysis of Subcontracting Plan Goal Attainment (SBA Form 1907), the DOD P-14, a Five-Year Trend Analysis, and a number of other reports - as well as an ad hoc reporting tool for users who wish to design their own reports. The agency OSDBUs will no longer need to input the SF 295 data into a Government database, as they have done in recent years, nor will they have to develop a special report for SBA; everyone will have access to the data at the same time. Also, the esrs will provide automatic reminder notices to contractors when reports are due and generate delinquent notices when contractors fail to submit reports by the due date. SBA CMRs will also be able to access the information from the esrs in order to conduct compliance reviews. The clause at FAR 52.219-9 will be modified to include general instructions and require that the OTSB contractor provide the prime contract number to all OTSB subcontractors with subcontracting plans under the flow-down requirement. This change will allow subcontractors to enter the prime contract number when they enter their reports for individual contracts. Use of the prime contract number will enable the esrs system to portray subcontracts at lower-tiers on a contract-by-contract basis and users will know how much small business receives in the aggregate by rolling up all the tiers. It will be useful for agencies such as SBA and the Defense Contract Management Agency (DCMA) that perform compliance reviews. How Often is the ISR Report Submitted? The ISR is submitted semi-annually during contract performance and at the completion of the contract. In other words, it is due by April 30 th and October 30 th and at the completion of the contract. The first ISR should be submitted during the first reporting period, even if no subcontracting has taken place. What is Reported on the ISR? The ISR report collects subcontract data, including: The dollar amount and percent of the total planned subcontracting awards and planned SB (including ANCs and Indian tribes), SDB (including ANCs and Indian tribes), WOSB, HUBZone SB, VOSB, and SD/VOSB goals. Additionally, the report requires breakdown of ANC and Indian tribe awards. These goals are a material part of the prime contract or subcontract, or, if revised through a contract modification, the revised goals. 19
The cumulative dollars awarded in each category to reflect the progress made toward the SB (including ANCs and Indian tribes), SDB (including ANCs and Indian tribes), WOSB, HUBZone SB, VOSB, and SD/VOSB goals. Additionally, the report requires further breakdown of ANC and Indian tribe awards. The DUNS number as it appears on the federal contract Product/Service Lines NAICS Code Email addresses of government reviewing officials For lower-tier subcontractors: include the prime contract number AND higher-tier subcontractor DUNS numbers The system calculates the achievements by two methods: percent of total contract values percent of total subcontracting It is very important that all areas on the report form are completed; the system requires the form to be complete and accurate or it may be rejected. For Blocks 2 8, the goals from the subcontracting plan will be entered and the actual cumulative columns will be calculated automatically. Who Submits Summary Subcontract Report (SSR) (formerly the SF 295 report)? All OTSB contractors that have one or more prime contract(s) and/or subcontract(s) in excess of $650,000 ($1.5 million for construction of a public facility) with the federal government, and have Subcontracting Plans. OTSB contractors/subcontractors must access the online reporting system at www.esrs.gov to complete this report. (13 CFR 125.3(c)(1)(iii); FAR 19.704) To Whom is the SSR Submitted? A separate SSR must be submitted to each federal agency for which the OTSB is performing work, covering only that federal agency s contracts. For example, if an OTSB is performing on contracts or subcontracts for GSA only, then the SSR that includes all GSA work is submitted online to the agency office selected from the drop down menu. If an OTSB is performing on contracts or subcontracts in excess of $650,000 ($1.5 million for construction of a public facility) and has Subcontracting Plans with one or more federal agencies in addition to GSA, then a separate SSR, excluding GSA subcontract data, must be submitted to each appropriate federal agency selected from the drop down menu. 20
DOD awards are consolidated except for construction and related work (e.g., contracts with the Army Corps of Engineers). You should contact your DOD contracting officer if you have any questions about special DOD reporting requirements. How often is the SSR Submitted? For work performed for civilian agencies using an Individual or Master Subcontracting Plan, the SSR is submitted once a year, thirty (30) days after the close of the fiscal year, i.e. due by October 30 th. For work performed for DOD activities, the SSR is submitted semi-annually, by the 30 th day of the month following the close of the reporting period, i.e., due by April 30 th and October 30 th. In the case of a commercial subcontracting plan, this report is due within 30 days after the close of the government s fiscal year (October 30 th for the year ending September 30 th ). What is reported on the SSR? Prime and subcontractors who have subcontracting plans will report subcontracting data from these plans on the SSR. Prime and subcontractors will also report data from contracts that don t require subcontracting plans on the SSR. All subcontract awards to OTSB and SB (including ANCs and Indian tribes), SDB (including ANCs and Indian tribes) WOSB, HUBZone SB, VOSB, and SD/VOSB firms regardless of the dollar value, under all federal prime contracts and/or subcontracts awarded by the specific federal agency (GSA or DOT, etc.) are included on the SSR. Additionally, the report requires further breakdown of ANC and Indian tribe awards. For Individual and Master Subcontracting Plans, in Blocks 2 through 7 of the SSR, all subcontracting awards issued are included for each agency from which a contract or subcontract were received, regardless of the dollar amount. A prorated indirect portion must be included. Commercial business is not included. Subcontracting dollars are reported for the period indicated, either 6 months or 12 months. For Commercial Plans, in Block 8, the type of Subcontracting Plan and the percentage of dollars attributable to the agency to which the report is submitted must be identified. In Blocks 2 through 7, all subcontracting activity (both government and commercial) in effect during the year is included. All indirect dollars must be included. The subcontracting dollars are reported for a 12 month period. All data reported on the SSR must be accurate. Records must be available to support the data. The ISR and SSR are intended to document the dollars awarded to SB (including ANCs and Indian tribes), SDB (including ANCs and Indian tribes), HUBZone SB, WOSB, VOSB, and SD/VOSB. It is important to note that prime contractors may take credit for only their own 21
subcontracting dollars, not for the dollars awarded by subcontractors at lower tiers. See the esrs website and FAR clause 52.219-9 for instructions. The Government will review: The Prime Contractor will review: Higher-tiered Subcontractors will review: Prime Contractors ISRs ALL SSRs 1 st tier Subcontractors ISRs Lower-tiered Subcontractors ISRs Contractors must print a hard copy of the SSR, have it signed by the Chief Executive Officer and keep the signature copy on file for 4 years. Acceptance of reports means that the Government has reviewed the report and that it appears to be complete. Since a future on-site compliance review could identify flaws in the preparation of the report, the government always has the right to reject a report that has previously been accepted. The Full Operating Capability (FOC) of esrs also includes the following features: Interfaces with capable vendors back-office applications; Robust reporting for SBA and other Government users (includes both pre-defined reports and a versatile ad hoc reporting tool); Adding the Year-End Supplementary Report for Small Disadvantaged Business and the Small Disadvantaged Business Participation Report (formerly the Optional Form 312) to the reports menu; and Break-down of dollars attributable to the appropriate Federal agencies resulting from commercial plans SBLO Handbook: 06//15/2010 22
Chapter 7 How SBA Monitors Other-Than-Small Business Contractors As stated previously, the SBA, through the Small Business Act as amended, is designated as the principal government agency responsible for enforcing the provisions of the law pertaining to subcontracting. The authority to carry out these responsibilities is incorporated into government contracts via the Utilization Clause (FAR 52.219-8) and the Subcontracting Plan Clause (FAR 52.219-9), which provide SBA with the access and legal authority to monitor any subcontracting activity at any tier. SBA accomplishes this responsibility through periodic reviews, which may be major or minor in scope (13 CFR 125.3(f)). However, in accordance with FAR 42.302 (a)(51,52,53,54 and 55), the Defense Contract Management Agency (DCMA) performs similar program reviews on DOD contractors, with some exceptions, over which it has cognizant administrative authority. It reviews prime contractors only since it has no privity of contract with subcontractors. (See Appendix I, SBA/DCMA Memorandum of Understanding.) Subcontracting Program Compliance Reviews Subcontracting Program Compliance Reviews deal with all aspects of a firm s Small Business Program. The purpose of this comprehensive review is to evaluate the overall effectiveness of a firm s Small Business Program. There are seven mandatory elements of this review which can have a significant impact on the way an OTSB contractor administers its Small Business Program. Validation of the contractor s methodology for preparing reports of subcontracts awarded to all categories of SB and OTSB, involving examination of the purchase order journal or computerized process and verification of a sampling of purchase orders to small businesses in all categories, including the supporting certifications. Five-year trend analysis of the contractor s utilization of all categories of small businesses. Overall evaluation of the contractor s Small Business Program which determines the contractor s internal dedication and commitment to its program. Sampling of contracts containing subcontracting goals to determine the actual achievements against the goals for small businesses in all categories and to ensure that the contractor has implemented specific provisions contained in the other elements of the Subcontracting Plan. Purchase order analysis of awards made to OTSB to identify possible opportunities for small business; to make certain that small businesses are being solicited in every instance possible for purchases over $150K, to assure adequate documentation exists in cases where small businesses are not solicited, and to determine if flow-down Subcontracting Plans have been required when subcontracts over $650,000 ($1.5 million for construction of a public facility) were issued to these subcontractors. Follow-up on sourcing efforts to determine the status of small business sources in all categories referred to the contractor by the CMR since the last review. 23